Low cost fibre-optic communications encourages outsourcing

WASHINGTON: It is not just the low labour cost but another little known economic factor that is encouraging several US companies to outsource their jobs to countries like India - plummeting cost of global communications.

The capacity of fibre-optic lines connecting telephone systems into India, for example, increased almost sevenfold from 2001 to 2002, according to TeleGeography, a research division of PriMetrica Inc.

This has lowered prices and allowed more room to transmit everything, from free calls into customer-care centres to e-mails and Internet traffic, says a report in the Wall Street Journal.

As a result, a telephone and data line under the Pacific Ocean capable of handling up to 128 voice calls at a time can cost just $11,000 a month -
one-fourth its cost just two years ago, according to J.P. Crametz, a director at Oncept Inc., a telecom procurement consulting business based in Palo Alto.

"The differences in labour costs between the US and other, less developed countries have existed for a very long time, so that alone is not the cause of outsourcing. It is basically the change in telecommunication costs that has allowed companies to take advantage of labour costs that have existed for a long time," says Thomas Malone, a professor at the Sloan School of Management at the Massachusetts Institute of Technology.

India's capacity to meet this kind of communications from the rest of the world is expected to more than double by the end of this year.

Seeking to cut costs, several American companies have so far hired about 170,000 workers in India for jobs such as payroll accounting, telemarketing and customer support services.

The figure is expected to reach 1.1 million by 2008, industry groups say.

Wipro's chief information officer Tamal Dasgupta was quoted by the Journal as saying "increased bandwidth, falling prices, compression and secure methods of connectivity" have all worked together well to lead to the growth of outsourcing demand from the US.

Low-cost communication is what enables computer firms to hire engineers overseas, and credit companies to locate call centres on the other side of the globe.

But what is good for companies may not necessarily be good for their workers these days as lower technology costs also provide a double-edged sword, say some analysts.

Indeed, stagnant domestic job growth and cuts in unemployment benefits are undermining what should be the positive benefits of free trade.

With several new underwater lines into Asia expected to soon go into service, more price declines in that part of the world are certain.

As it is, in connections to India and China, "the rate of price decline is nowhere what we've seen in the rest of the world", says Stephan Beckert, director of research for TeleGeography.